A Primer on the Optimal Monetary Policy Rule: The Case of US*

Jangryoul Kim and Gieyoung Lim

International Area Studies Review, 2009, vol. 12, issue 3, 57-78

Abstract: This paper examines the optimal monetary policy rules in a business cycle model with nominal rigidities. Optimality is measured in terms of a utility-based welfare metric, and the welfare effects of the non-linear dynamics of the model are captured by a quadratic approximate solution method. The welfare maximizing rule among a class of Taylor-style rules is characterized by i) super-inertial adjustments in interest rates; ii) strong short run anti-inflation coupled with long run deflation, and iii) increasing interest rates in response to higher real output level and growth.

Keywords: Monetary Policy Rules; Nominal Rigidities; Welfare Evaluations; Quadratic; Approximate Solutions (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:sae:intare:v:12:y:2009:i:3:p:57-78

DOI: 10.1177/223386590901200304

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